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Wednesday, June 30, 2010

We are still postponing the purchase of the new companies, which still weren't announced. They will be soon.

Apart from that, the portfolio is doing wonders so to speak. The last batch of stocks that that were bought a year ago, and sold yesterday, the average return translated into +18% (not including dividends) while the S&P during the same time period (June 2009 - June 2010) made +12.5%.

Of the 6 stocks though, the outperformance clearly came from 2 companies only, but that is to be expected. Some will underperform (usually the majority) while a couple ones will make heavy over performance covering all the underperformance of the other stocks and then some making it possible to beat the market.

Also I'm glad we did make the change on the strategy as well. The hedging part of our portfolio, where I use a longer term version of "Zé Manel" serving as an overlay to neutral our portfolio by shorting the market as a whole, while keeping our beloved stocks. Since we first started this overlay, our overperformance increased from +46% to +60% as of today !

This means that our stocks as a whole have been falling less than the market as a whole, and at times even being able to make a bit of money. Of course under this strategy the goal is not to make money, but to hedge our portfolio of market risk and to maintain our gains and for us to be dependent on our stock picks exclusively.

For example, today which was a down day for the market with more than 1% down, we actually managed to gain a few dollars with an up day of our portfolio of +0.50% ... I wish all days could be like this :) it won't... but we should keep our eyes on the big picture, and I believe we really do have a winning strategy here

Tuesday, June 29, 2010

We sold the shares today at the open, as it was issued on Twitter and on the chat room. So far we haven't made any move regarding purchases, and I will wait it out a bit to see if the current weakness develops into more selling of the broad market or not.

Regardless of the decline, I'm happy to say that the portfolio managed to squeeze a little gain and to increase by a greater number the margin we had to the market. While last week it stood around +52.5%, today it stands at +57%. Of course, this is both a consequence of being short the broad market and at the same time our stocks as a whole are outperforming.

I will keep a close eye on the market this week and try to see, if we should get in the new equities or not.

Tuesday, June 15, 2010

I was watching the price action today, and from the looks of it, at least from my perspective there is good odds that this rally may be overdone now.

In terms of Elliott Wave, the correction has been in very mushy waves, not being impulsive thus corrective... I think wave 2 may actually have ended today, where the correction took form of a ABC flat formation.

Thursday, June 10, 2010

Remember back in September 2009 when I posted articles talking about the doom of the dollar? At the time, the "End of the Dollar" as they called it, appeared in front covers at least in Portuguese financial media...

Well, right now, this couldn't be any more explicit:

A major economic/politic magazine with such an explicit cover, it makes a really great contrary signal. Most likely this cover will mark a bottom on the Euro as it is common on these kind of things, as I've said before the media is always the last to join a trend...

Of course one, under an EW perspective could argue that since we are in the largest degree wave ever pretty much, previous records on indicators, etc, are expected to be broken... we'll see to which way does it brake.

Sunday, June 6, 2010

A very interesting opinion from IEA - Institute of Economic Affairs and that I agree 'till the last word...

Portugal to be first to default

Tuesday, June 1st, 2010

The so-called Keynesian consensus that seemed to emerge following Obama’s stimulus package, was a short-lived one. Governments, mainly in the eurozone shatter belt, are dropping the same public policies they had put forth a year ago. It is not that unemployment has decreased – on the contrary. Nonetheless, “special social measures” and “job creating” public investment is being curtailed.

This should be sufficient evidence that the Keynesian answer to the crisis has failed. The Keynesian stimulus plans ignored the very low saving rates. In particular, Greece and Portugal had the lowest internal liquid savings rates (when public and private savings are added, and replacement investment deducted) of the last decade. Indeed, both countries had negative saving rates in 2008, with Portugal hitting a low of -5.8% of GDP against an EU average of 6%! It is no surprise that such highly indebted countries are now paying heavily for such leveraging.

Added to this, the Portuguese socialist government failed to understand that it should cut spending drastically. Instead, it has decided to increase taxes to respond to market worries about government borrowing. Taking into account the deep level of leveraging, both in the public and the private sector, the tax rise simply added to the risk of a banking failure, as it passed on debt from the government to households and firms, leaving the size of government untouched.

As such default probabilities on credit derivatives based on Portuguese sovereign debt remain very high; interest rates spreads are increasing; and bank refinancing is more expensive, leading to added costs for indebted firms and households, as well as to another increase in the budget deficit.

The question is: how is the government going to avoid default? Raising taxes again will be suicidal, and reducing the public sector wage bubble is anathema. Public sector wages have never been frozen in Portugal, and they are still growing. If the government does not lower them, there is no way Portugal will get out of its debt trap. I would bet on Portugal being the first eurozone country to default.

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